MAGAZINE ARCHIVES

Builder's paradise

In public memory the name 'Bhopal' will forever remain associated with the gas tragedy, the world's worst industrial disaster that killed and maimed thousands 26 years ago. But there is much more to the capital of Madhya Pradesh, and one of its most intriguing features of late has been the way its realty sector has defied the trend prevailing in the rest of the country. At a time when real estate is reeling under the impact of a series of body blows - interest rates climbing higher and higher, scarce capital, a volatile Sensex, all of which are scaring away buyers - Bhopal seems entirely unaffected.

Even today, every other large hoarding in this town of 2.9 million advertises real estate projects. The demand is so great that Bhopal has no need for brokers to go out and woo customers - buyers in their thousands flock directly to the developers. "The last four quarters have been phenomenally good," says Lt. Vinay Bhadauria, Managing Director of realty company IBD Universal. "In Bhopal, we clocked sales of Rs 150 crore in the last financial year."

Bhadauria's sentiment is echoed by most other developers working in Bhopal. "We had phenomenal growth in the past year," says Rishabh Mahajan, Director, Ruchi Realty Holdings, part of the Rs 14,000-crore, Indore-based Ruchi Group. Global realty investor Sun Apollo Real Estate Advisors has acquired a 45 per cent stake in one of Ruchi's projects, Ruchi Lifescapes, being built over 85 acres at Jatkhedi, on Bhopal's outskirts. This is Sun Apollo's first investment in a nonmetro city in India. "They are very happy with their decision to invest here," says Mahajan. Naturally, since 55 per cent of the project is already sold, and it has already started paying back residual earnings to the promoters. Leading realty company Unitech too has a joint venture in Bhopal under its low cost brand, Unihomes.

Records at the district registrar's office reveal that in the last three years, there has been a 42 per cent growth in the number of title deeds registered, from 41,214 in 2008/09 to 58,566 in 2010/11. Revenue from housing deals through stamp duty and registration charges has risen 65 per cent in the same period.

Currently, there are more than 50 construction projects in Bhopal, which will supply 40,000 housing units in the next two years. "There is a boom in Bhopal. Land and property prices have gone up manifold," says Nikunj Kumar Shrivastav, Bhopal's Collector.

But rising prices - at around 15 to 20 per cent per annum - have in no way dampened demand. Indeed the boom continues despite Shrivastav's office having steeply increased the 'guideline values' as well for localities in Bhopal - the minimum price at which a property in a particular area can be sold, akin to the circle rates in Delhi and other cities - by two to seven and a half times from April 1 this year. "We took the step after a detailed survey," says Shrivastav. "This will mean more revenue for the government apart from reducing the amount of black money in real estate."

The reason for such contrarian behaviour lies in the surge of development that has come to Bhopal in recent years. Industry is growing rapidly. Apart from the sprawling plants of the state owned Bharat Heavy Electricals Ltd, or BHEL, and the Bhilwara Group owned HEG, both of which were set up decades ago, the industrial cluster of Mandideep, 20 km south of Bhopal, houses the factories of, among others, Crompton Greaves, Lupin, Procter & Gamble, Parle Agro, and the Vardhaman Group.

Lupin has one of the country's biggest pharmaceutical facilities at Mandideep spread over 65 acres. The company selected the area for its operations in 1997 because of its infrastructural strengths. "That, coupled with the availability of skilled manpower makes it an ideal location," says Ramesh Swaminathan, President, Finance and Planning.

The government is also trying hard to develop Bhopal into an educational hub, √† la Pune. The city already has 74 engineering colleges and five medical colleges. The All India Institute of Medical Sciences has set up a branch here, as has the National Institute of Fashion Technology. There is more to come: "The state government has earmarked 400 acres of land for educational institutions," says Shrivastav. All this activity is bringing thousands of newcomers to Bhopal - all of whom need homes.

No doubt there is a key difference between the real estate market of Bhopal and those of the metros: the prices are not in the same league. It is still possible to buy a well constructed, semi-detached house in Bhopal at the rate of Rs 2,000 to Rs 2,500 per sq. ft (Rs 22,000 to 28,000 per sq. m), or an apartment for between Rs 1,750 and Rs 2,250 per sq. ft. Even in high-end projects, the market rate is around Rs 2,600 per sq. ft. In comparison, the circle rate for residential properties is Delhi's expensive areas - which is well below the market rate - is Rs 7,740 per sq. ft. Land in Bhopal costs about one tenth of what it does in the metros, and overall profit margins too are far more modest.

"We are on an entirely different platform from the metros," says Sunil Moolchandani, Chairman of the Chinar Group, a prominent real estate group in the city. "That has kept most of the large national players away and prices are growing in a controlled manner."

The absence of big players, many feel, is a blessing in disguise as such companies artificially jack up real estate prices beyond the reach of the majority of consumers in smaller cities like Bhopal. Vineet Singh, Business Head of online real estate agent 99acres.com, notes that it was precisely this phenomenon that sent property prices shooting up in the cities of Lucknow and Kochi which ultimately boomeranged on the industry.

Vinay Bhadauria, Managing Director, IBD Universal

"The developers in these markets are feeling the pinch," he says. Moderate prices have gone in Bhopal's favour and kept the boom going, mitigating the impact of rising interest rates. "Affordable prices correct the impact of rising interest rates," says Ajay Mohgaonkar, copromoter of local realty firm Fortune Builders.

"Bhopal offers lessons for value engineering," says Gulam Zia, National Director, Research and Advisory Services, of real estate agents Knight Frank (India). He believes property prices in Bhopal are just right and there will be no correction. "The market in small towns like Bhopal never experienced either the property boom of 2006/07, or the correction that followed due to the global financial downturn in 2008/09," says Abhishek Kiran Gupta, Head of Research at real estate services company Jones Lang LaSalle. Both these trends were primarily confined to the metros and the emerging boom cities like Hyderabad and Pune.

Some experts, however, sound a note of caution. "The depth of the market has to be seen," says Anshuman Magazine, Chairman and Managing Director, South Asia, of realty firm CB Richard Ellis. "Bhopal might see construction growing at a good pace, but large scale projects are unlikely." But with infrastructure set to improve further - Bhopal airport will soon turn international, and the water supply to the city is being enhanced - such fears may prove groundless.